The condensed Seattle first time home buyer’s guide

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If you are planning on buying or selling a home in Seattle in 2020, this is a quick primer on what you need to know, especially if this is your first home. Like most markets, supply and demand control the pricing.  Right now, demand is around the normal amount we’d expect to see in an early Spring timeframe, with a small boost from low interest rates, and a small depression from current King County health concerns (though, not much according to the Seattle Times).  Overall demand is about 2% above the normal level.  Supply on the other hand is about half of what we’d need to have a balanced market, and it’s pushing prices up quite a lot.  For buyers, the best thing that can happen is a surge of homes coming on the market in late spring/early summer. This remains to be seen, but we’ve got high hopes.

The fact is, people sell for two reasons:  one being that the market will fetch them a price that they cannot refuse, and the second being life changes, such as job relocation, growing family or retirement. The data shows us that people are holding on to homes longer, and job growth in the Pacific Northwest is strong.

As a buyer, one needs to be persistent, flexible in criteria, and strongly prepared in terms of down payments, love letters, expectations, and they need to be quick to move on homes that come on market.

Sellers can take this opportunity to spend a little extra time preparing their home marketting and fetch solid prices. Sellers benefit when they have their pick from many buyers.

Engaging an Agent

We advocate for contacting a buyers agent early in the process.  Most people will start with browsing some websites and attending some open houses, which is a decent way to get to know the market. This is akin to dipping your toe into the waters, but if you’re ready to take the plunge, then you’ll want to find someone to be your guide through the process.  Home buying in 2020 is much simpler on the front end (identifying properties, searching etc) because of the internet and much more complex on the back end (legal liability, liens, encumbrances, easements, underwriting, etc).

What you need to know:

  1. Some agents use a “buyer’s contract”, where they ask you to contract to working with them for your entire home-buying experience.  We don’t recommend these or use them ourselves, in fact we think they perpetuate bad stereotypes about our industry and don’t match the way we do business. We think that you should only work with an agent because you feel that they bring you value, and you feel supported, valued and informed throughout the process.
  2. Buyers agents are always free to buyers.  In Washington State, the seller pays those fees in exchange for bringing the buyer to them. In fact, no one gets paid until the day of closing
  3. Going in without a buyer’s agent won’t save you money.  Without the proper agency established on both sides, the risk for the seller and the seller’s agent shoot up.  You can browse Reddit or other media sites where people compare the experience of using an agent vs. not using an agent, and the overwhelming consensus is that it is in your best interest to have representation on your side.

When to buy?

Trying to time any market is tough, some might even say a fool’s game.  What we’re seeing in the midst of massive stock market volatility is that while stocks can swing 10% in a few days, real estate is much more stable.  Plus, one must account for market progression.  If your budget is $500k, the homes you are looking at will be $536 to $550k this time next year, so unless you are saving more than that, your buying power is going down. For this reason, we say buy when you are ready.  It’s a stretch for almost everyone to get into their first home, and you are not alone if you feel a little nervous about the process.  What I can tell you is that while the market is on the seller’s side for now, the process is very much on the buyer’s side, with lots of opportunities to do due diligence on your new home before you own it.

What to expect

Everyone has different expectations of their agent. We have clients that expect daily updates about the market, and others who would like to only be contacted when there’s a matching property.  We recommend that you set your expectations with your agent so that they know how often you’d like to be contacted. Don’t be shy about your preferences, and be sure to send them some ideas of what you like. Communication is key, and we always err on the side of over-communicating.

Pre-approval

As soon as you start looking, you’ll want to get pre-approved. Interest rates are amazing right now, and chances are they are going to give you a pre-approval for more money that you might feel comfortable spending.  There’s no need to spend the full amount, it’s just good to know your upper limit. When you actually make an offer, your loan officer will make you a new letter for close to your offer amount.

Getting pre-approved in the world of the post-2008 mortgage crisis is practically a part-time job.  You’ll need to come up with tax returns, pay stubs, letters of explanation, bank statements, and sign some federal disclosures.  There are a couple of items which cannot be signed electronically, so for the time being you might still need to fax a couple of items. The documentation is extensive.

What should your down payment be?

The lowest down payment amount is 3.5%, on an FHA loan. That means that you can put 3.5% down if the home is under the FHA limit. Right now (March 2020), the FHA limit for King and Pierce County is $741,750.  The home also has to be approved for FHA (your agent can tell you what homes are), and some condos are too.  We also have something very recently available called “FHA Spot Approval”, which means under certain conditions, a home which is not FHA approved can get an FHA loan.  (This is very property specific… just picking the kind of loan for you can be tricky)

Conventional Loans

Most conventional loans require 5-10% down, though some banks offer 3% conventional loans.  Conventional loans are a bit more stringent, but can go higher in amount, and are generally a preferable loan if you have a good down payment.

Mortgage Insurance

If you put down under 20%, you’ll need to pay something called mortgage insurance. This isn’t a great thing to have, but it can be a necessary evil if you’re trying to get in the housing market, and the prices of your market are progressing faster than you can save. If prices go up, and you keep up payments and improvements, then you can refinance and get rid of Mortgage Insurance in just a couple of years.

Don’t change your credit

During your home shopping and escrow periods, you’ll want to refrain from applying for credit cards, making big purchases.  The exception here is that you are allowed to do some comparison shopping for mortgages

The offer process

The process of actually getting a home under contract is the most emotional part for most people.  Recent clients of ours in Wallingford Seattle have seen homes come on market and have almost 20 offers over the weekend, while homes farther out might be less competitive.   The average Seattle home buyer puts offers on 8 homes before getting one under contract.  If your budget is 800k for a home, then you may want to set your searches to include 600-825.  This will give you a more realistic range, and allow you to offer on homes that are purposely priced low just for the sake of escalating their price.

Keep hope!

It’s not unusual to make an offer and have it be rejected.  An enormous (50%+) amount of offers in Seattle are all cash, and if you’re not in the all-cash boat, you can find your offer being shuffled to the bottom of the pile.

Offer process

The offer process is relatively simple, though the years have added many many forms to the process, most of which you will not need to worry too much about.

There are two main kinds of offers:

  1. A regular “set-price” offer. Your agent will work with you to figure out around what the home is worth.  You might add a few thousand to put yourself above others.  This kind of offer is contingent on satisfactory appraisal, inspection and your bank signing off on finance-ability of the property
  2. An escalation offer. In this kind of offer, you’ll offer a fixed price (usually the asking price), plus a promise to pay x amount over the next best offer.  If you’ve used eBay, you know how this works.

Depending on your experience with home buying and the strength of your financing, you might also waive appraisal, or other contingencies.

e-Signing

Most documents can be signed electronically now, as it is accepted in all 50 states. Occasionally you’ll work with a seller who is perhaps elderly, or does not want to use a computer.  In this case, signing may take a little longer, it’s totally normal. Waiting can be the hardest part.

Offer accepted!

There’s no better words to hear than “Mutual Acceptance” when you’ve fallen in love with a home. This means that the seller and buyer have agreed to a price, and now a whole new set of things like inspections, appraisals and financing are set in motion.  Here’s where your agent really starts to shine.  They are going to activate a network of people on your behalf, contextualize a number of options you’ll have, and feed you mountains of paperwork, all of which is in service of uncovering the story of your prospective home, and protecting you from overpayment, future liability, termites, and get your earnest money back if things aren’t in your best interest.

Earnest

Earnest money is just a small amount of money to show that you are serious about the home, and it’s completely refundable if things fall apart. Typically its 1-2% of the sales price, and it applies to your down payment.  We always get you either a FedEx envelope, or send a courier to you to collect your earnest.  It’s due typically about 3 days after your “mutual acceptance.” We’ll advise you about wire-fraud scams and how to avoid them, and start to build a packet of paperwork for your closing day.

Inspection

Most home sales are contingent on inspection. That means after the inspection you can pull out, renegotiate the price, or ask for repairs.  In a competitive market, you might get none of those, or only critical ones that threaten financing.  For other properties, you might discover a dealbreaker, or a defect that gets you a fair price reduction.  Every inspection is different, and for more detail, we have a blog:  What to expect when you’re inspecting.

What it will cost

A good home inspection from a licensed inspector will cost $400-$500.  It’s worth every penny.  One caveat is that it has to be a licensed home inspector. It can’t be your Uncle Bubba that knows a thing or two about houses.

What to concentrate on

Home inspection isn’t a time to nitpick (in a seller’s market).  Concentrate on structural issues, systemic issues (like electrical, plumbing, etc, and safety issues (like asbestos, hand railing on stairs and the like)

Measuring for furniture

Pro tip:  This is a great time to measure for furniture, window treatments, etc.  Inspection might be the last time you get to go into the house before closing.  Outside of things like inspection, appraisal and walk-through, you might not be able to just pop in to the house for fun.  Some sellers might be agreeable, but they are under no obligation to allow you in. Inspection is a good time to take some pictures and start thinking about your plans.  However don’t make any big purchases yet.

Appraisal

Every home that’s financed must be appraised by a licensed appraiser. One nice thing about the world post 2008 mortgage crisis is that Appraisers and Lenders can no longer collude on home pricing, so an appraiser is giving an honest price opinion.  Your offer is a data point in this appraisal, so you will often find that if the home was priced well, the appraisers price and your offer price will line up.

If the appraisal shows that the home is not worth what you offered, there are a number of avenues you can take, and this is another area where your agent can add a ton of value.  When a seller has received an offer at a certain price and an appraiser says that the home cannot be financed for that amount, there’s a great deal of friction.  We’ll save this for another blog, but safe to say that in Seattle in Spring 2020, even during the 20 days your home is under contract that it will gain enough value that the appraisal is almost always guaranteed to come in at or above the value you offered.

Walk through!

The day before closing you can do a walk through to make sure all the appliances are there, none of the windows have been broken, etc. If there’s been an issue, we’re here to get it made right before you sign.

Closing day

On closing day, you’ll sit down with a notary, and sign all your papers.  These days, we have mobile notaries that will travel to you, meet you at a coffee shop, or you can go into a title and escrow office to sign. It’s a daunting task, there are often a stack 2 inches tall to sign, and each one needs to be signed with the full name that will appear on your title.  By the end your hand will be cramped, and you’ll be emotionally exhausted, and possibly made the biggest purchase of your life.

Getting your down payment to the escrow

Typically you will wire your down payment to escrow.  There are situations where you can write a check, but generally you need guaranteed funds.  Escrow (the people that handle the money) do not mess around. As shown by this article, where a couple lost almost $800k in a wire fraud scam, we live in a day where one cannot be too careful. You’ll want to follow your agent’s advice, and carefully read all the wire disclosures that come to you.  Double, triple, quadruple check everything and make sure you never wire based on an email.  The emailed instruction are where the scam generally is.  You usually need to send the down payment 1-2 days before closing, sometimes on the day of closing.

Keys

Can you believe after all this you still don’t have keys?  The last part of the process is something called “recording”, where your deed is recorded with the county.  This happens a couple of times a day, and when it does, you’ll get your keys, which is kind of funny because the first task in your new home is to change the locks. You never know how many babysitters, house sitters, dog walkers and friends had keys, so we strongly recommend that you change the locks posthaste.

Whew!

Time to pop some champagne, or borrow our moving van and move your things! That’s a lot of information, and we just outlined a very smooth transaction.  It can get incrementally more difficult from here, depending on how the inspection turns out, liens on the home, etc. We’re here to smooth out those bumps, guide you through the process and get you to closing day in the perfect house.

If you’d like to know more, let us buy you a coffee or something stronger, and figure out if this whole house buying thing is right for you.

-Dan and Amy

 

 

 

 

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